Solid growth in global oil demand is set to drive oil prices to above $100 this year and Brent Crude could trade at $105 per barrel by the fourth quarter.
However, the oil market is expected to return to deficit in the second half of the year.
China’s re-opening and the huge crude oil import quotas just allocated to private refiners in the country, the world’s largest crude oil importer signal expectations that Chinese demand is set for a rebound once the exit COVID wave wanes, analysts have said.
A surge in oil prices could be of benefit to Nigeria, Africa’s largest oil producer and member, Organisation of Petroleum Exporting Countries (OPEC) which needs cash to fund its N21.8 trillion Budget 2023 with crude oil benchmark increased to $75 per barrel from the previous $70 per barrel, while oil production was pegged at 1.69 million barrels per day (bpd).
According to its latest crude oil and condensate production data for last December, the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) said production had increased in December last year to an average of 1.23 million bpd from 1.18 bpd in the previous month; the highest in nine months.
Oil prices had jumped by four per cent Monday after China’s borders reopened this weekend—after almost three years. Market participants focused – at least for a day – on brighter prospects of oil demand, instead of on fears that recessions in developed economies are imminent.
Expectations of solid demand growth this year should allow the OPEC+ group to unwind in the second half of 2023 the production cut announced in October, Goldman Sachs said.
But if demand is softer than predicted, OPEC+ “could stick to its October cuts or cut production even further, given its significant pricing power,” the bank said.
“Overall, this ‘OPEC put’ limits the downside risks to our bullish oil price forecast,” Goldman Sachs noted.
Last month, the bank said that the Chinese reopening could lift oil prices by $15 per barrel, as China’s demand could increase by 1 million bpd on average between 2022 and 2023.
In mid-December, Goldman said that supply shortages and insufficient investment in new supply would result in a bumper year for commodities in 2023.
Commodities are set to be the best-performing asset class in 2023, the bank’s strategists said. The first quarter of 2023 could be more underwhelming than the rest of the year due to the expected slowdown in economies, but the low levels of investment in oil, gas, and key metals will continue to underpin what Goldman has called a new super-cycle in commodities.
